INSIDER CONSENSUS (Negative Consensus/Bull Market Indicator): Those in the know selling stocks at a record pace.

September 17, 2014

If there is one group of people who have a very tangible understanding of what is going on their business and what is going on in other businesses they buy and sell to, it is the corporate insiders that manage and run businesses of all stripes. They will know before anyone whether demand is slowing or picking up and how well their customers and completion is doing. Often they will signal what they think of their company’s prospects by voting with their wallet and either buying or selling stock in their business. 

So what are the insiders doing? Well it appears they are selling stocks at a very aggressive rate.

“Pavilion Global Markets looked at insider trading activity for companies in the S&P 500, and noticed that the number of buy announcements took an unusual tumble this summer, when the benchmark index hit a succession of record highs.

The rolling three-month average number of announcements plunged to just 89 in September. According to Pavilion strategists, that’s the lowest reading on record and about half the historical average for September.

At the same time, the number of sell announcements was 1,412, which is well above the historical average for this time of year and the highest for any September going back at least 10 years.

Put the two numbers together and the ratio of insider selling to buying is above 15, or the highest level on record.

The situation is similar in Canada, according to Vancouver-based INK Research. For Canadian companies, the level of insider buying activity has fallen by half over the past year, as the S&P/TSX composite index rose to record highs earlier this summer.

“As the market has gone up, insiders have been more inclined to take profits than go bargain-hunting,” said Ted Dixon, INK’s chief executive, adding that corporate insiders are much more discerning today than they were a year ago.”

I refer a lot to the Smart Money People which I describe as analysts and market strategists on Bay Street and Wall Street that have a lot of letters and initials after their names and who have self-anointed themselves to be experts on how to run businesses, even though most haven’t or can’t even manage their own chequing account. The reality is that the people I would consider to be worthy of the term Smart Money People are the entrepreneurs and leaders that have risked their own capital into starting and running great businesses. They are making deals every day and they see tangibly how business is conducted in the world. They know in real time what is selling and what is not and naturally will know this well before we ever do.

What could be worrying the Insiders? An overpriced stock market, tepid economic growth around the world, geopolitical uncertainty and probably the most concerning is the potential for interest rates to trend up. They’re all valid concerns.

 The Consensus Watch Blog is our attempt to identify consensus, primarily so that we can take the other side of the trade because more times than not the contrarian position tends to win out. From our many years of following the Consensus, it seems the one type of observation that doesn’t seem to have a contrarian bent are the actions of people and organizations that are strongly in tune with the daily flows of commerce. We would be wise to learn from their actions.